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4. As would be evident from the subject heads contained in the above-referred extracts from the third schedule to each of these contracts, the consortia were to supply plant, equipments and spares as also certain basic designs and supervisory services at site. SAIL wanted import duty to be charged on the plant and equipments alone. SAIL’s stand is that the price for the plants and equipments included all design and engineering for their manufacture. But designs and drawings specified in the schedule were all post-importation project related and project implementation activities. The customs authorities on the other hand added the basic design and engineering fee of DM 2.23 million and supervision charges during manufacture of Indian equipments and for erection, commissioning and performance guarantee tests of 0.675 million to the invoice value. In respect of the second contract, direction was made for addition of basic design and engineering fee of DM 6.65 million, as built drawings of DM 0.1 million and supervision charges during manufacture of Indian equipments and for erection, commissioning and performance guarantee tests of DM 2.842 million to the invoice value. The dispute had reached the Commissioner of Customs for Special Valuation Branch, the authority of first instance, after a questionnaire was sent to SAIL, which was responded to. The authority of first instance heard the representative of SAIL. In the final orders, the authority of the first instance directed the aforesaid additions. The said authority observed that the contractor was entrusted with the work on a turnkey basis, where the entire supplies and services were dependant on each other. On this premise, the provisions of Rule 4 and Rule 9 (1) (e) of the Customs Valuation (Determination of Price of Imported Goods Valuation Rules, 1988 (hereinafter referred as the “1988 Rules”) was invoked to sustain such additions to the invoice value in respect of both the contracts. The underlying reasoning for the said orders of the authority of first instance was that the commercial arrangements constituted turnkey contracts and package deal, which made it conditional for the purchaser to buy the equipments which complied with the technical specifications of SAIL. As a consequence, sale of the equipments was conditional as the different aspects of the schedules of supply and service were interrelated. The transaction value of the imported goods was directed to include the price paid for the basic design and engineering, drawings, supervision of erection, commissioning, performance guarantee and technical services under Rule 4 read with Rule 9(1)(e) of the 1988 Rules.

6. Further appeals of SAIL however, was decided in their favour by Customs, Excise and Service Tax, Appellate Tribunal, Kolkata (CESTAT) by a common order passed on 22nd May, 2006. These appeals were registered before the CESTAT as C/V-537/2001 and C- 01/2002. The CESTAT formulated the points for determination in the following terms :-

“[i] whether the basic design and engineering fee of DM 2.230 million and foreign supervision charges of DM 0.675 million are liable to be added to the invoice values of imported equipments under Rule 9 of the Valuation Rules? [Appeal No. C/V- 537/2001] [ii] whether the charges towards basic design and engineering fee of DM 6.650 million, fee for as built drawings of DM 0.100 million and also supervision charges of DM 2.842 million are liable to be added to the invoice values of the imported equipments under Rule 4 of the Valuation Rules read with Section 14 of the said Act? [Appeal No. C-1/2002]”
“1. This is a contract that contemplates the supply of basic design and engineering drawings and the supervision of erection, testing and commissioning based thereon. One is as much a part and a condition of the contract as the other.
2. We find, therefore, no merit in the appeal. It is dismissed with costs.”
12. The case of Mukund Limited (supra) dealt with setting up of a cleaning plant as part of basic oxygen furnace shop of SAIL (coincidentally the same respondent), for their Rourkela Steel Plant.
“6. The payment of $ (sic) 6,57,900 noted above in the price schedule is towards the services indicated above in the Agreement and which is a necessary concomitant to the supply of Design and Engineering drawings for the gas cleaning plant made by Davy Mckee and imported by the appellants. The appellants have been entrusted with the setting up of gas cleaning plant, and this could only be achieved not only by purchasing the basic design and engineering drawings imported from Davy Mckee but also the whole engineering package of supervision of detail drawing, erection, commissioning and performance guarantee test. The payment made in foreign exchange towards supervision charges during design, erection and commissioning will necessarily have to form part of the assessable value of the imported goods and the value thereof will include not only the price paid for design and engineering but also for supervision charges. This will follow from Rule 9 of the Valuation Rules which provides for addition of certain costs and services to the transaction value. Rule 9(1)(e) covers all other payments actually made or to be made as a condition of sale of imported goods by the buyer to the seller.” (quoted verbatim) This was a case where Tribunal reached finding on fact that the two sets of items were to be added to reach the assessable value as the plant could be set up as per the basic design only and the second set of designs, drawings and activities intricately interlinked. This case did not involve importation of any equipment.